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2020 gives London hedge funds a run for their money

For years, European traders wanting to run a hedge fund have headed to one place: Mayfair.

Unlike the US, which has numerous hedge fund centres such as New York, Greenwich, Chicago, LA etc, London’s upmarket Mayfair district was really the only place to get the gossip, meet other traders and be near the wealthy investors passing through the capital. (An excellent selection of expensive eateries and private members’ clubs also helped).

Bar chart of Average industry returns by location of manager, Jan 2012 to Jul 2020 (%) showing UK hedge funds underperform

But Mayfair’s position is slowly being eroded. Over the years, the managers on the other side of the Atlantic have, on average, made higher returns.

Maybe that is down to luck, or just the fact the US stock market has done so much better than Europe’s. But assets tend to follow returns, and London has slowly seen its share of the (already-dwindling) global hedge fund pie shrink.

Chart shows estimated industry assets under management, by firm location (Q1 2020, %) showing America is the master of the hedge fund universe

London also does not quite have the hedge fund industry “legends” that the US has. Names such as George Soros and Julian Robertson’s Tiger Management have started huge hedge fund “family trees”, as successful managers have left to set up their own successful companies (an incredible 179 hedge funds have sprouted from Tiger and 117 from Soros, according to LCH Investments).

But it gets worse for London. As the FT’s Laurence Fletcher reports, Covid-19 hasn’t been kind to the city’s hedge fund sector. Big London-based names such as Winton, CQS and Lansdowne Partners have all run up big losses this year. Some of the biggest winners have been based, you guessed it, in the US (think Millennium, Citadel and Elliott).

This year’s travel restrictions are also not helping London managers who want to pitch their services to the US’s vast sea of investor capital.

And then there’s Brexit. As things stand there are a couple of dangers — firstly that UK managers won’t be able to market their services to EU clients in the same way, and secondly that they may have to start shifting staff to the continent.

Now might be a good time to check out those expensive eateries and private members’ clubs in Luxembourg and Dublin.

Snowflake’s stock market blizzard

Like many of this year’s must-have purchases (toilet paper, bread flour, fashion-forward medical masks), shares in the software company Snowflake came out of nowhere.

An unforeseen transition to remote working has unleashed Wall Street’s insatiable appetite for cloud software companies like Snowflake, and other technology companies that can smooth the transition to life in lockdown.

On Wednesday, the start-up conjured the largest-ever IPO by a US software company, raising a larger-than-expected $3.4bn.

© © Stacey Cunningham https://twitter.com/stacey_cunning/status/1306296841739345921

For context, that’s the largest offering in the US since Uber’s $8.1bn flotation in May last year. 

Its stock jumped more than 160 per cent above the IPO price to touch $315 after the opening bell before easing to close at $253.93. At the high point, the newly listed company was more than three-quarters the size of IBM and six times the size of Slack.

Somehow, the venture capital set managed to lowball the data analysis company during its last fundraising round in February — Snowflake’s soaring debut sent its market value to almost $90bn, seven times the $12.4bn valuation investors had given it.

Even bankers, notorious for overestimating some of the flashiest tech companies, significantly underestimated Snowflake’s potential ahead of its IPO — two individuals close to the deal told DD in June the company might fetch a valuation of between $15bn and $20bn.

The fanfare attracted big-name investors like Warren Buffett’s Berkshire Hathaway and Salesforce, who agreed to purchase $250m in stock each alongside the flotation.

But one illustrious tech investor was noticeably left out in the cold: Masayoshi Son’s SoftBank, which Snowflake rebuffed last year, insiders told DD.

“We have selected investors that are the right fit for the future of Snowflake,” the company said in a statement.

DD wonders which pandemic-era start-up will make it snow in Silicon Valley next.

Could this be the Big Foot of Covid tests?

A coronavirus breakthrough of mythical proportions angling to hit the market.

iAbra, a four-person operation in Toddington, an English village 40 miles north of London, claims to provide peace of mind in record time through its 20-second “Virolens” saliva tests. 

The team behind the 20-second test: Greg Compton, left, Shane Tingey, Justin Phillimore and Richard Tyson from TTElectronics © Russell Sach

The team has made “a significant step forward in the battle against Covid-19”, the company’s chief Greg Compton (pictured above to the left) declared.

The tests are manufactured by the UK-listed company TT Electronics, whose share price rose more than 40 per cent when the products were debuted, valuing it at £439m.

Line chart of Share price (pence) showing TT Electronics surges on potential rapid Covid test

But is the Virolens test too good to be true?

iAbra is linked to Lord Global Corporation, formerly called Bigfoot Projects Investments Inc (after, yes, the fictional monster), to bankroll the distribution of its Virolens machines throughout Australia, Latin America and south-east Asia.

Before it began its pursuit of the evasive Covid-19 rapid-test, Bigfoot Projects spent decades spreading hoaxes about the mythical beast.

Bigfoot Project’s founder, majority shareholder and self-identifying Sasquatch hunter Tom Biscardi registered the company with the Securities and Exchange Commission in 2013. Traded over-the-counter via “pink sheet” listings à la Jordan Belfort — the convicted stock broker who wrote The Wolf of Wall Street (the 2013 movie version starred Leonardo DiCaprio, pictured below) — the company generated an eye-watering $10bn valuation in 2016, according to CNBC.

Biscardi relinquished control of the company in December to a new board consisting of Lord Global’s only two listed employees: chief executive Joseph Frontiere and “chairman of the board” Alexandra Aizenshtadt, who are also a married couple.

Mr Frontiere told the FT the listed company was now an entirely separate operation with no connections to the former business.

While Lord Global may have confidently traded yeti-tracking for virus-tracking (they’re changing their name once again to 27 Health Inc, subject to US regulators), iAbra’s future is less than certain. 

The tests are still undergoing clinical trials. The obscure British tech company touted Heathrow airport and Leidos, a $13bn US software company, as potential “launch customers”, but neither, as our FT colleagues discovered, had yet to place any orders, though Leidos is involved in “active negotiations.”

And since our FT colleagues Anna Gross and Jemima Kelly delved into iAbra’s colourful connections, TT Electronics’ share price fell almost 14 per cent, our Alphaville blog points out.

Like scouring the forest for a glimpse of Big Foot, developing life-saving technology is no walk in the park.

Job moves 

  • Aberdeen Standard Investments, the fund management arm of Standard Life Aberdeen, has appointed Mark Redman as global head of private markets, based in London. Redman was previously global head of Omers Private Equity, the Canadian pension fund’s private equity arm. 

  • Tulchan, the UK-based public relations firm, has named Mark Burgess as a senior adviser and Jerry Buhlmann to its board. Burgess was deputy chief investment officer at Columbia Threadneedle until last year. Buhlmann was CEO of Dentsu Aegis Network until the end of 2018. 

  • Izzy Englander’s Millennium Management, the New York-based hedge fund, has hired Rosanna Konarzewski as chief communications officer. She joins from a UK-listed asset manager where she worked as global head of communications and marketing.

  • DC Advisory hired Tom Krasnewich as a managing director in its industrial group. He joins its Chicago office from Nomura, where he served as managing director and head of diversified industrials.

  • Eurazeo Capital, Eurazeo’s investment arm targeting growth buyout opportunities, hired Eric Sondag as a managing director in New York. He previously headed technology media and communications investments at the middle-market buyout firm GTCR.

Smart reads

Less space for Spacs Former Trump economic adviser and Goldman Sachs veteran Gary Cohn is the latest player in the game of Spacs. But as the market becomes increasingly congested with Wall Street and Silicon Valley types in search of quick millions, he may have difficulty identifying a target. (Vanity Fair)

Billionaire baby LVMH chief Bernard Arnault knows how to turn on the tears when it suits him best. Can he whine his way out of a legally-binding contract with Tiffany? (Reuters)

Headed East KKR is synonymous with big buyouts. But the burgeoning landscape of young Asian tech companies has the private equity shop veering towards uncharted territory. (FT)

News round-up

Beijing’s concerns loom over Nvidia’s $40bn Arm deal (FT) 

Beijing unlikely to block ByteDance deal with Oracle, say experts (FT + Lex)

Ex-GM executive moonlights as matchmaker in deal with start-up Nikola (Bloomberg)

Electric vehicle charge network ChargePoint nears deal to go public (Reuters)

Telefónica teams up with Rakuten in search of 5G networks alternative (FT) 

UK official was set to join KPMG while in talks to lead project that paid firm £1.5m (FT)

CaixaBank, Bankia reach merger agreement in principle, call board meetings (Reuters)

Hut Group shares soar after biggest UK market debut in five years (FT)

H20 Asset Management writes down Windhorst bonds by 60% (FT)

Walmart’s Flipkart eyes overseas listing as early as 2021 (Reuters)

Martin Franklin-led group launches London's first blank cheque IPO of 2020 (Reuters) 

Due Diligence is written by Arash Massoudi, Kaye Wiggins and Robert Smith in London, Javier Espinoza in Brussels, James Fontanella-Khan, Ortenca Aliaj, Sujeet Indap, Eric Platt, Mark Vandevelde and Francesca Friday in New York and Miles Kruppa in San Francisco. Please send feedback to due.diligence@ft.com

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